Now The Hard Part Begins: The China Challenge

Relativity is the key concept in measuring the success of China’s power transition. By this standard, one has to grudgingly congratulate the Chinese Communist Party for producing its first-ever, nominally at least, complete transfer of power from one top leader to another last week. The outgoing party chief, Hu Jintao, retired from both his party post and his position as the commander-in-chief, allowing Xi Jinping[4], now China’s new leader, to claim full authority in one stroke. Had Hu followed the precedent set by his predecessors, Deng Xiaoping and Jiang Zemin, and decided to stay on for two extra years as the chairman of the party’s central military affairs committee, this would have been a semi-failed transition.

The good news does not stop there. As expected, the Politburo Standing Committee, the party’s most powerful decision-making body, has been downsized from nine to seven, thus making it easier for Xi to build a coalition in a body often paralyzed by decision-making through consensus.

Perhaps the best news for Xi is that the bar for his success has been set relatively low by the departing administration’s failure to pursue real reforms during the preceding decade. So even minor initiatives to tackle some of China’s social and economic problems should make Xi look good by comparison.

Judging by his first, albeit brief, public speech, Xi certainly did not disappoint. His remarks at the ceremony unveiling the new standing committee on November 15 were direct and notable for the lack of tired official slogans and rhetoric. His confident demeanor strengthened his public image as well.

Unfortunately, that is where the good news ends. Compared with Hu’s rise to the top a decade ago, Xi certainly has gained more power. But it is worth pointing out that he will face enormous constraints, at least in the short term, in gaining decisive influence at the top level of the Chinese power hierarchy.

The most immediate obstacle to any prospects of major policy shifts lies at the very top. The new standing committee[5] has a strong conservative presence. The perception of the new team is that it is dominated by relatively mediocre and risk-averse leaders. Xi may not find many allies who would support an agenda of bold reforms, assuming that Xi has such an agenda in mind (something we honestly do not know). The line-up of the new committee confirms that the selection was based partly on seniority (all the two-term Politburo members under 68 were promoted), but mainly on the need to maintain a balance of power among various factions and interests. Such considerations have produced a team that lacks reform credentials or shared policy preferences. It would be too optimistic or premature to believe that such a delicately balanced body could address China’s problems[6] quickly and decisively.

Xi must also be concerned with the influence of retired leaders, in particular, Jiang Zemin, 86, and Hu Jintao, 70. Jiang proved his enduring political clout by managing to put two to three of his loyalists on the committee. Hu was less successful in appointing his supporters to the standing committee, but apparently got a good deal for “retiring naked” (quitting all positions). Of the 15 new Politburo members, at least half are his protégés, including one 49-year-old rising star who will be well-positioned to contend for a spot on the standing committee in five years’ time. If anything, Hu’s influence will remain considerable in the coming five years.

Because of these political constraints, Xi will have to balance the imperative for him to establish his image as a decisive and different leader with the political necessity of getting along with his colleagues on the standing committee and the retired leaders. The result of this delicate balancing act is likely a cautious start characterized by the adoption of relatively easy policy measures designed mainly to differentiate the new leadership from its immediate predecessor.

One such measure may be a thorough reform of the hukou system (household registration) that denies rural migrants full citizenship rights. Allowing them to become full urban residents enjoying all the rights and benefits of city dwellers will be both socially just and economically beneficial. In the past, opposition from large cities in coastal areas and the public security apparatus has blocked the reform. But today, since more than 200 million migrants have settled in the cities already over the few decades, and improving their status can unleash enormous economic dynamism as well as create an instant constituency for Xi, it is highly likely that Xi will make this issue a top priority.

Another issue that may further enhance Xi’s political capital is the abolition of the much-hated one-child policy[7]. Political opposition to this reform is even weaker – one can think of only one interest group, the family-planning commission, that will try to block such a move. Obviously, one important political consideration is that this bold move will effectively overturn a policy closely associated with Deng Xiaoping. But on balance, Xi may conclude that this is a risk worth taking.

On the economic front[8], however, Xi’s room for maneuver is smaller. While he may continue to expand some promising experiments on financial liberalization, significant reforms that will hurt the state-owned enterprises[9], local governments, central bureaucracy and families of the elites are certain to encounter fierce opposition. Xi may choose not to pick a fight he cannot expect to win easily.

Political reform – at least of the kind that will introduce more democracy and civil liberties – is extremely unlikely. The risks for Xi are simply too high. The two Politburo members perceived to be reformers – Li Yuanchao and Wang Yang – failed to make it into the standing committee mainly because they are seen as likely champions of political reform. Xi is obviously aware of what happened to the two top leaders, Hu Yaobang and Zhao Ziyang, who advocated political reform during the 1980s (Both lost their jobs).

Compared with the constraints he faces on the domestic policy front, foreign policy actually may be an area over which Xi will gain control more quickly and decisively. Given the urgency of the escalating Sino-Japanese tensions over the Senkaku/Diaoyu Islands[10], Xi will have to act fast to avoid a foreign policy crisis. Of course, Xi’s long-term foreign policy objective is stabilizing Beijing’s relations with Washington since the underlying competitive dynamics are driving the two countries further apart. But this goal will be elusive unless and until he fixes Sino-Japanese ties.

Whether Xi can pull this off is anybody’s guess. He will have to invest some political capital and take real risks in moderating China’s positions and stopping the now routine patrols of the waters close to the disputed islands[11] (such patrols are designed to contest Japan’s sovereignty claims, but may trigger a tough response from Tokyo that leads to further escalations). Japan’s political establishment will also have to cooperate by not taking actions that make it impossible for Xi to make symbolic concessions.

So the bottom line in evaluating China’s new leadership in general, and Xi in particular: he and his colleagues will have to walk the walk. His predecessors have done enough talking already.